India frets over $59bn investment in US debt

WASHINGTON: It's only a small frown of concern just now, but it was enough for finance ministerP Chidambaram to ask his officials to add up and let him know the amount of US bonds India is holding — just in case Uncle Sam goes belly-up — before he left for Washington this week.

The investment, estimated at $59.1 billion in July , is not as astronomical as the one China owns ($1.3 trillion). But it is still substantial enough for New Delhi to factor into its balance sheet just in case the United States defaults on interest payments if Congress does not raise the legislative ceiling of its $16.7 trillion debt by October 17.

"There is no panic yet. We believe the American system is mature enough to resolve the issue," a senior functionary of the finance ministry said in a background conversation with TOIon Thursday, even as US lawmakers and the executive continued their epic political scrap that is making the whole world nervous. "We are quite sure we will be paid," the functionary said, adding after a pause. "If not now, then later."

Here is why the world is anxious — and you would be too if you know the extent of your country's abetment in American profligacy — about the US showdown: Much of the world invests in US security — literally, as well as in the sense of stability. Seen as the epitome of strength, steadfastness, and rule of law, which allows its trademark $$$ to be the global reserve currency, countries invest in US Treasury bills, bonds and notes, believing it to be safe as houses.

This is fantastic for all parties concerned, as long as the safehouse, which some believe is actually a house of cards, holds up. Americans buy boatloads of Chinese goods, Beijing takes the money and reinvests it in US securities, financing more US buying and more debt, earning more interest in the process — like a shopkeeper who keeps financing his potentially delinquent customer in the hope that he doesn't default even as he collects interest payment on the debt.

Small wonder the Chinese are in a tizzy at the prospect of a US default. They are leaders in a Treasury department list of foreign creditors and investors , who hold about 34% of total US debt as of May 2013 (about $5.68 trillion of the country's $16.74 trillion debt). Brazil, Taiwan , UK and Russia are all in the same boat owning more than $150 billion US debt each.

India, by contrast, has been more prudent, but it is still in enough of a hole to pray for US security and stability. But why invest in US security at all? Well, you don't want to stow your rainy day fund under the mattress. And for the longest time, there is no country and no currency seen as stable and safe as the US and its dollar.

"When all is said and done, there is no other country or currency in the world you would rather invest in. There is rule of law, functioning courts, enforcement of contractual obligation etc., " the Indian government functionary explained, comparing it to other countries, including India's disastrous experience with Russia on the Gorshkov issue. "This is still the best bet." Perhaps he was hoping that US lawmakers who are holding America and the international community to ransom — dubbed "mad dogs" by a Daily Beast columnist — are listening. But as of Friday morning there is no sign that the gridlock over government shutdown or the debt ceiling showdown will end any time soon.